Medicare:

Need to Overhaul Costly Payment System for Medical Equipment and Supplies

HEHS-98-102: Published: May 12, 1998. Publicly Released: May 15, 1998.

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Pursuant to a congressional request, GAO reviewed Medicare's payments for commonly purchased, off-the-shelf durable medical equipment (DME), focusing on the need to: (1) better identify products billed to Medicare; and (2) bring Medicare fees more in line with current marketplace prices.

GAO noted that: (1) there are two underlying problems with Medicare's DME payment system; (2) the Health Care Financing Administration (HCFA) does not know specifically what products Medicare is paying for when its contractors process claims for DME; (3) the only product identifiers on the claims are the HCFA billing codes that cover a broad range of product types, quality, and market prices; (4) without more specific product identifiers on Medicare claims, HCFA cannot routinely determine what products are being billed under each billing code, which products should be grouped together under the same billing code, or whether the Medicare payment for all the products grouped under a billing code is reasonable; (5) the health care industry is increasingly using bar-coded, product-specific identifiers for medical products, but HCFA does not have any plans to require these identifiers on Medicare claims; (6) the second underlying problem with Medicare's DME payment system is that the fee schedule allowances for DME are often out of line with current market prices; (7) most Medicare fees are based on historical supplier charges updated using the consumer price index; (8) the Balanced Budget Act of 1997 (BBA) gave the Department of Health and Human Services (HHS) the authority to use a streamlined inherent reasonableness review process to adjust Medicare fees by as much as 15 percent in one year; (9) this streamlined authority should help HCFA bring the historical, charge-based fees into line with marketplace prices, but some obstacles remain; (10) HCFA and its contractors do not have sufficient, current product and pricing data for the thousands of DME items covered by Medicare; (11) another obstacle to appropriate reimbursement is that the fee schedule allowances are the same for individuals and for large institutional suppliers, even though large suppliers buy at substantial discounts; and (12) although the BBA gives HHS the authority to more quickly adjust fees, addressing these underlying problems may require additional statutory authority.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: In the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), CMS was required to begin competitive acquisition of--also called competitive bidding for--durable medical equipment, off-the-shelf orthotics, and supplies in 2007. Through competitive bidding, suppliers who wish to serve Medicare beneficiaries will proffer fees that they would accept and the Centers for Medicare & Medicaid Services (CMS) will use that information to set payment amounts and choose suppliers. Competitive bidding addresses the essence of GAO's recommendation.

    Matter: In order to help ensure that Medicare fees for DME are reasonable, Congress may wish to consider enacting legislation directing the Secretary of Health and Human Services to establish a separate fee schedule to reimburse nursing homes for the medical equipment, supplies, and devices provided to their patients.

  2. Status: Closed - Implemented

    Comments: In the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), CMS was required to begin competitive acquisition of--also called competitive bidding for--durable medical equipment, off-the-shelf orthotics, and supplies in 2007. Through competitive bidding, suppliers who wish to serve Medicare beneficiaries will proffer fees that they would accept and the Centers for Medicare & Medicaid Services (CMS) will use that information to set payment amounts and choose suppliers. Competitive bidding addresses the essence of GAO's recommendation.

    Matter: In order to help ensure that Medicare fees for DME are reasonable, Congress may wish to consider enacting legislation directing the Secretary of Health and Human Services to reimburse providers of medical equipment, supplies, and devices at the lower of the Medicare fee schedule allowance or the lowest payment suppliers agreed to accept from other payers.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: HCFA has met with commercial database companies and determined that their databases will not provide relevant pricing data in making inherent reasonableness determinations. However, it is exploring the possibility of identifying these data through other means.

    Recommendation: In order for HCFA to gather information needed to adjust Medicare fees for DME, the Administrator, HCFA, should ensure that HCFA's contractors systematically gather and analyze market prices for medical equipment, supplies, and off-the-shelf orthotic devices billed to Medicare by using commercial pricing databases and considering competitive prices paid by the Department of Veterans Affairs, the Department of Defense, and other large payers.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

  2. Status: Closed - Not Implemented

    Comments: CMS did not report any progress on this recommendation.

    Recommendation: In order for HCFA to gather information needed to adjust Medicare fees for DME, the Administrator, HCFA, should require suppliers to identify the specific medical equipment, supplies, and devices they bill to Medicare by including universal product numbers on their Medicare claims.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

  3. Status: Closed - Implemented

    Comments: In the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), CMS was required to begin competitive acquisition of--also called competitive bidding for--durable medical equipment, off-the-shelf orthotics, and supplies in 2007. Through competitive bidding, suppliers who wish to serve Medicare beneficiaries will proffer fees that they would accept and the Centers for Medicare & Medicaid Services (CMS) will use that information to set payment amounts and choose suppliers. Competitive bidding is to be phased in for the items with highest cost and billing volume. Furthermore, CMS will be able to use information from the competitive bidding process to adjust fees for the items bid in geographic areas not included in the bidding. This new authority supplements the authority given in the BBA. CMS has issued regulations to allow it to begin competitive bidding within a year.

    Recommendation: The Administrator, HCFA, should use the authority provided by the BBA to adjust Medicare fee schedule allowances, setting a priority on items that account for the highest Medicare expenditures.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

 

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